Macau: January Looks Good But Beware Possible Corruption Crackdown

By Ben Levisohn

Nomura has a look at Macau gambling revenues for the first six days of January–and they’re looking good.

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The month-to-date number has jumped about 14% from the same period last year, and the numbers for the full month could grow at an 8% to 12% clip–the overall number reduced by the Chinese New Year.

The numbers have been boosted by new rain lines into Macau that have made it easier for ordinary Chinese citizens to lose their money to the casinos. That’s good news, because HSBC says that China may launch another anti-corruption campaign this month–and a similar crackdown hit VIP revenues last year.

In fact, that’s been one of the key themes for Macau gambling recently–the return of the VIP gambler. If China’s corruption targets other areas this time around, these stocks could surprise to the upside.

At the beginning of the month, Lazard Capital Markets’ analysts said they preferred Las Vegas Sands(LVS) because it has more exposure to mass market than other operators, while still having the potential to benefit from pickups in VIP gaming. Las Vegas Sands has dropped 0.1% today, and has returned 10% so far this year.

MGM Resorts International (MGM), meanwhile, has gained 0.7% today after being upgraded to outperform from neutral by Credit Suisse. It had returned about 8.9% this year through yesterday’s close. Wynn Resorts (WYNN) has tumbled 1% today, while Melco Crown Entertainment (MPEL), has plunged 2.3%.

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JANUARY 8, 2013 12:18 P.M.

Spokanimal wrote:

You are correct that Sands is the market leader in Macau in terms of Mass Market revenues. Additionally, Sands is currently completing the only new resort(s) that will open in macau for at least the next 2 (galaxy phase 2) or 3 years (MGM, SJM, WYNN) and that resort, "Cotai Central", is actually 3, mega-resorts in one... each one rivaling the size of any of Macau's biggest resorts.

You are also correct that Sands has an un-apprciated capability to exploit junket VIP business as it revives this year. For the past 18 months, Sands has been spending between $150 and $200 Million completely remodeling it's Macau junket suites in "made to order" fashion for a host of new, prominent junket aggregators. When these new suites opened at Sand's VIP-intensive, Plaza casino on the Cotai Strip, Year-over-year gambling revenues shot up 75.9%.

Venetian's junket VIP suite renovations are more extensive and have competed for scarce construction labor with the Cotai Central development for the past 9 months. As a result, a significant portion of those suites were still out of service and under construction in last year's 3rd quarter and contributed to Sand's under-performance at that time. Now, as those renovations conclude, the company is ramping them up just as VIP business begins to surge in Macau, and Sand's junket VIP business could be the best kept secret in Macau as Q4 and Q1 earnings hit the tape.

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Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.